Fleeing to Cash is Not Usually a Good Move

The financial planning community needs to remind clients that this is usually not a great move. Bear markets are also fertile times for scams under the guise of sensible “adjustments” and “alternatives”. The pitches for the following less-than-great instruments products are coming.

Gold

The idea of holding an instrument that could benefit from government dysfunction (see recent events in Washington) has appeal. Gold is advertised as a smart play for safety. Still, gold has no projected earnings stream and has been far more volatile recently than mainstream financial products.

Gold is pitched as a ‘diversifier’ and talked up as a hedge against inflation and currency devaluation. But if the dollar is so bad and a collapse is coming, and soon, why would the gold trader give up its valuable gold in exchange for your soon-to-be-worthless dollars?

Alternative Investments

If you want higher costs, greater risk, more dependency on a fund manager’s crystal ball, less transparency, low tax efficiency and restricted access to your money, alternatives may be for you. If you want to understand how the products you are buying work and want to avoid undue risk, they’re not such great investments.

Deferred Annuities

In the consumer press, annuities are mentioned next to “high-cost products” and “shady sales techniques” – often deservedly so. That aside, with IRAs and retirement accounts, the tax-deferral element of an annuity is moot. Using these contracts in these accounts adds unnecessary restrictions and complexity. Then there are the surrender fees. No client needs the extra hoops to jump through. Retirement withdrawal is complicated enough as it is.

Options Strategies

A focus on options suffers from one basic problem. The thinking is switched away from a sound long-term plan and toward lessening the effect of a market downturn – as if downturns are something to fear rather than something to expect.